What’s Up With the Loonie?

Good day… And a Wonderful Wednesday to you! I hit all my traffic lights on green this morning, so it’s going to be a “good day”! Funny how little things like that put a smile on my face.

OK… Another day of watching the euro (EUR) rise up to 1.5815 and then see it get sold back below the 1.58 figure when the NY boys arrive at their desks. The pattern for the first two days this week has seen that selling in the morning, and then a slow rise in the afternoon, and then back over 1.58 in the overnight markets. That’s where we are again this morning.

So, it seems that 1.58 is the boogeyman for the euro these days. That could all change tomorrow, as we will have the double whammy of the ECB rate hike and the Jobs Jamboree showing negative job creation for the sixth consecutive month. Yes, that’s right; every month so far in 2008 has recorded negative jobs… OUCH! And people say we’re not in a recession? They should know better than to spout off stuff like that when the empirical evidence is as plain as a man with a hatchet in his forehead!

The dollar bulls are lying low of this double whammy tomorrow, and they are playing that old TV game show and chanting… No Whammys, No Whammys! HA!

I’ve had quite a few readers send along a note asking me what’s up with the loonie (CAD). Good question! One would think that with the price of oil above $140, and gold back to $900, the loonie would be soaring… But NOOOOOOO! The loonie seems to be stuck in the mud at 98-cents. I scratch my bald head on this one. I think that traders stepped away from the loonie when the Bank of Canada (BOC) was doing their Federal Reserve imitation, and cutting interest rates. Now that the rate cuts have ceased, traders are scared to get back into the loonie waters as they have tarred the loonie with the same brush as the dollar south of the border.

What will it take to get the loonie back on the radar screens of traders? Hmmmm… A rate hike by the BOC would do the trick! But… I think that the BOC has painted themselves into a corner, much like their brothers at the Fed. The corner isn’t as tiny as the one the Fed Heads have painted themselves into, but it’s a corner nevertheless! Inflation is rising in Canada, so maybe… Just maybe… The BOC will come to its senses, and come down from those fences, oh renegade, and hike rates to get the loonie out of the mud!

Yesterday, pound sterling (GBP) was reliving some of the past, touching $2 again. But that was short-lived, as profit takers lined up to take a shot at getting $2 for their pound sterling. Then there was some news overnight that really sent the currency lower. Here’s the skinny… U.K. house builder Taylor Wimpey failed to raise the 500 million pound sterling that it was looking for from inventors, canceled its first half dividend, and announced the departure of its Finance Director. This brought the housing meltdown back to front and center, and canceled those hopes that the Bank of England would erase their rate cut a couple of months ago.

And the beat goes on… In Australia… Aussie retail sales posted a 0.7% gain in May. This report surprised many economists in its strength, but not me! I keep telling anyone that will listen that this Aussie economy is strong, and is buoyed by commodity prices… And of course the Chinese economic explosion. Looks like the Aussie dollar (AUD) is knocking on the door to 96-cents again this morning on this report. It also looks like 96-cents seems to be the Aussie dollar’s boogeyman, much like the euro’s 1.58… But I believe these to be temporary stopping points, which would mean to anyone that pays attention to stuff like this, that dips below these levels would look like buying opportunities.

The Indian rupee (INR) is once again on the skids, falling to 43.17. This weakness in rupees has me worried about this currency. For the longest time, the Reserve Bank of India was selling the currency to keep it from getting too strong. The exporters were screaming bloody murder… And as I was telling a friend of mine at dinner last night… Once traders see that the central bank wants to sell its currency, they say, “Well… They must know something we don’t”. And they go along with the sales. That’s what’s gone on here in India. I’m still a fan of the currency, but this selling has to stop soon!

The data cupboard in the United States is getting restocked with tomorrow’s Jobs Jamboree, but before the re-stocking takes place, we’ll see the last few crumbs of data represented by the ADP employment report and factory orders for May. The ADP employment report is usually used as a precursor to the Jobs Jamboree, and has, in the past, been a good indicator when jobs were being lost.

Factory orders will probably keep the one piece of good data going, as oil refineries are included in this data… And we all know that oil refineries are working overtime to keep up with demand… And to get paid those high bucks that are now available because of the price of gas!

Right now, the “experts” have forecast a loss of 60K jobs in June. I just don’t think it will be that “kind”. I think the number will be very disappointing… Especially if the Bureau of Labor Statistics (BLS) doesn’t get their hands in the cookie jar again!

For new readers, the BLS has a model they use called the Birth/Death model, which they use to guesstimate the number of new businesses that have opened, but that are not a part of their reporting yet. That’s all fine and dandy, but in a slow/recession period like we’re in now, they should be taking away jobs on the “death” part of their model… But instead, they add jobs every month. Jobs that most likely don’t exist, and lead me to call them “ghost jobs”.

So… Every month, the jobs report is ready for prime time, but the BLS has to massage it with their Birth/Death model in their final report, which is picked up by the media and the markets, and which affects asset prices. Isn’t it sad that something that affects asset prices is merely a piece of data that isn’t true? I think so… But… The markets get all lathered up about the report and everything comes to a stop before the report prints. Therefore I call it the “Jobs Jamboree”!

Gold had another good performance yesterday (it’s down $7 overnight). The geopolitical tensions between Israel and Iran get hotter than a firecracker! That, and the fact that the negativity in the dollar is growing again, has gold really bid above $900.

Currencies today 7/2/08: A$ .9590, kiwi .7570, C$ .9795, euro 1.5795, sterling 1.9870, Swiss .9785, ISK 78.85, rand 7.8275, krone 5.0950, SEK 5.9890, forint 149.30, zloty 2.1250, koruna 15.1275, yen 106.60, baht 33.41, sing 1.3620, HKD 7.7990, INR 43.17, China 6.8666, pesos 10.36, BRL 1.5980, dollar index 72.49, Oil $141.35, Silver $17.97, and Gold… $933.65

That’s it for today… I have an Op-Ed piece on Forbes.com right now. Please click here if you’d like to read it.

Today is Drew McLean’s 1-year birthday! Drew is the bouncing baby boy of Jennifer, who has sat at my right or left side on and off since 1995! She just celebrated her 8th year at EverBank! So Happy Birthday Drew!

My radio interview went well yesterday… I’ve been a guest on that radio show several times now, and each time they say ahead of time that the interview will be 5 minutes… But they always keep me on longer… I’d say that’s a good thing! OK… Time to hit the send button. Hope your Wednesday is Wonderful! Wild, Wired, Wacky, but… Most of all… Wonderful!

Chuck Butler
July 2, 2008